German court clears euro rescue package

KARLSRUHE, Germany -- The eurozone took a major step Wednesday toward solving its debt crisis as Germany's top court cleared a new bailout package, a ruling Angela Merkel hailed as a “good day for Europe.”

In a landmark ruling watched around the world, the Constitutional Court dismissed a raft of legal challenges aimed at preventing German President Joachim Gauck from signing two crucial crisis-fighting tools into law.

Delivering a landmark ruling with far-reaching implications for the euro's future, the eight scarlet-robed judges of the Bundesverfassungsgericht said Gauck could sign the European Stability Mechanism (ESM) and fiscal pact.

“This is a good day for Germany, this is a good day for Europe,” the German chancellor told parliament.

“Germany is once again sending a strong message to Europe and beyond,” Merkel said. “Germany is decisively living up to its responsibilities as Europe's biggest economy and a reliable partner.”

While the eurozone crisis would not be beaten immediately, she said Europe had made “initial progress” toward overcoming the difficulties that have at times threatened the very existence of the 17-nation eurozone.

The ruling came on a day of risks for the euro, which has enjoyed calmer times in recent weeks, as an anti-austerity party is seen likely to score big gains in Dutch elections and EU leaders unveiled plans for the first step toward a eurozone banking union.

European Commission President Jose Manuel Barroso called for a quantum leap toward a kind of United States of Europe, a move he said would require a new treaty.

Markets and analysts also welcomed the court ruling, which also came as a relief to Merkel and other EU leaders, as a rejection of the ESM would have triggered a fresh bout of financial chaos and a new political crisis.

European markets were generally in positive territory after the decision, the euro strengthened on the foreign exchange markets and Spanish and Italian borrowing costs dropped.

Holger Schmieding, an analyst at Berenberg Bank, hailed it as “another big step toward defusing the euro crisis” but warned against over-excitement.

Andreas Vosskuhle, second left, presiding judge of the German constitutional court, is flanked by other judges, from left, Peter Huber, Gertrude Luebbe-Wolff, Herbert Landau and Peter Mueller, as he announces their verdict on the permanent eurozone rescue fund in Karlsruhe, southern Germany, Wednesday, Sept. 12. (AP)